Korea Wins, Japan Loses in Currency Dance

The South Korean won’s slide the last two weeks might feel disconcerting, but it’s likely great news for Korea’s massive export engine as a cheap currency makes exports more competitive. It’s also yet another punch in the gut for Korea’s big export rival, Japan.

While everyone is focused on the won’s slide versus the dollar (the dollar has risen 8.5% against the won in the past month, including another 2.5% Thursday), the more important figure to watch is the won’s level with the yen. After all, Korea competes in many of the same areas as Japan. Think Hyundai vs. Honda, Samsung vs. Sony.

Nomura economist Young Sun Kwon notes this morning that the won is approaching its low against the yen reached in 2008 in the days after the Lehman Brothers bankruptcy. One Japanese yen is buying 15.34 won Thursday, compared with 16.4 on March 3, 2009. The yen is up 10% this year against the won.

The latest slide is part of a much longer-term trend of won weakness versus the yen. The Japanese currency has been strong across the board since the financial crisis intensified in 2008, a huge frustration to Japan’s export competitiveness. The yen-won numbers are remarkable. Since the start of 2008, the yen is 80% stronger versus the won in nominal terms.

Mr. Kwon figures the latest slide will provide a boost to Korea’s exporters and to the country’s tourism sector. From his research note Thursday:

“Korean exporters should enjoy almost the same level of price competitiveness compared to Japanese manufactures as they did in 2008-09. Many Korean manufactures are globally competitive in technology and marketing. There are also income effects: in February 2009, the weak [won versus the yen] caused a surge in Japanese visitor arrivals to Korea, up 72%”.

Nomura is already expecting Korea’s 2012 GDP to hit 5% and figures if the won keeps falling, it may revise that figure upward.

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